WASHINGTON, April 9 (Reuters) - A major banking industry group urged U.S. regulators to expand the types of loans eligible under a public-private investment program to cleanse banks' balance sheets of toxic assets.

The American Bankers Association also said on Thursday the program should not disadvantage smaller community banks from being able to sell their troubled assets under the Legacy Loan Program (LLP).

The Federal Deposit Insurance Corp is currently mulling a plan, which at the moment includes loans secured by mortgages on residential or commercial real estate.

FDIC Chairman Sheila Bair has said that U.S. banks have an estimated $1 trillion of distressed "legacy" loans on their balance sheets. She said the FDIC's "legacy loan" program can cleanse the banks of about $500 billion of those assets.

The Treasury Department is also trying to put the final touches on a plan aimed at absorbing banks' toxic securities in which five large firms will initially be picked to manage the assets. The program could be expanded to other firms.

In a comment letter to the FDIC, the ABA said the pool of assets should be expanded to trust preferred securities (TPS), all real estate-related loans and "real estate owned" (REO) assets.

The FDIC is accepting public suggestions until Friday on how to operate the LLP.

Bair, Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are due to meet with President Barack Obama at the White House on Friday to discuss the results of stress tests being conducted at the 19 biggest U.S. banks. [ID:nN09454931]

The ABA said TPS represent one class of assets that has been problematic for many banks. At the end of 2008, about 1,400 bank holding companies had about $148.8 billion in outstanding TPS, which have been downgraded.